Industry hits out at planned VED changes

The motoring industry has reacted in a mixed manner to the changes to road tax, MOTs and insurance announced in the 2015 Budget.

Vehicle Excise Duty (VED) is set for the biggest overhaul, as the current road tax system is being largely scrapped from 2017. It will be replaced a three-band system where cars will be classified as Zero Emission, Standard and Premium. Only cars that emit 0g/km - only electric vehicles for now - will pay nothing, while all other cars will pay £140.

The exception is cars that cost more than £40,000, which will be subject to an extra £310 charge, meaning many cars will face a £450 annual road tax payment. This applies even to cars that emit 0g/km, such as the Tesla Model S, which will have a £310 tax bill.

There are still 13 bands for the first year of a car’s life, with those that emit less CO2 paying less tax. Cars emitting 1-50g/km will pay just £10, while those that emit more than 255g/km will pay £2000.

Addressing Parliament, chancellor George Osborne said the current VED system “isn’t sustainable or fair”, given the rise in low-emissions vehicle ownership, which has resulted in increasing numbers of people paying no VED at all during their first year of ownership. He revealed that the system will be reviewed as necessary to make sure the cleanest vehicles are incentivised.

However, the Society of Motor Manufacturers and Traders (SMMT) has expressed concern that the industry wasn't consulted on the plan.

SMMT chief executive Mike Hawes said, "The chancellor’s Budget announcement on the regime came as a surprise and is of considerable concern. While we are pleased that zero-emissions cars will, on the whole, remain exempt from VED, the new regime will disincentivise the take-up of low-emissions vehicles. New technologies such as plug-in hybrid, the fastest-growing ultra-low emissions vehicle segment, will not benefit from long-term VED incentives, threatening the ability of the UK and the UK automotive sector to meet ever-stricter CO2 targets.

“The introduction of a surcharge on premium cars also risks undermining growth in UK manufacturing and exports. British-built premium cars are in increasing demand at home and globally, and the industry helps to support almost 800,000 jobs in the UK. Levelling a punitive tax on these vehicles will almost certainly impact domestic demand.”

Figures from the SMMT reveal that demand for low-emissions vehicles is helping to drive growth in the UK's new car market. In June 11,842 ultra-low-emissions vehicles were registered in the UK - a four-fold increase on the same period in 2014.

The premium tax was slammed by Jaguar Land Rover, which said: “Jaguar Land Rover believes placing a tax on vehicles over £40,000 sends a very negative symbol to the UK's premium automotive industry. The UK should be proud of its premium car manufacturers, which support huge numbers of jobs and investment, not specifically penalise it.”

Meanwhile, Mitsubishi, which has seen a surge in sales of its plug-in hybrid Outlander, is less fazed by the revamp, saying: “We wouldn’t expect the changes to affect PHEV. There are a lot of other incentives in terms of economy and cost of running the vehicle.”

The AA felt that motorists would make car-buying decisions on the changes, though, saying: “If you are prepared to take the first-year hit, people will ask what the benefit is of going for a car in the A, B or C bands. If you pay a premium in the first year, you can have something that emits more CO2.”

The money raised from VED will be set aside for a newly created roads fund, which will be put into action at the end of this decade to pay for the upkeep and improvement of Britain’s roads. Osborne said the new fund was designed to create “the sustained investment for the roads we so badly need".

He added: “This is a major reform to improve the productivity of our economy and improve life for the motorist."

Osborne said four-fifths of journeys in the UK are now taken by road, and yet the UK has built just 300 miles of motorways in the past 25 years.

The chancellor has also kept the promises he made during last year’s autumn Budget, reiterating that fuel duty would remain frozen for this year.

Describing his Budget as a "Budget for working people", Osborne said: “Our long-term economic plan is working, but the greatest mistake this country could make is to think that all our problems are solved.

"This is a big budget for a country with big ambitions."

Are the changes the right approach?

YES - Hilton Holloway

There’s a big problem with so-called ‘green taxes’. Back in the noughties, green taxes were seen as the best way to change behaviour.

The London Congestion Charge and CO2-based car taxation were both acclaimed as successful green taxes. Of course, the problem is that if green taxes do change behaviour, this also means the amount of tax raised will drop sharply.

The government’s own projections showed that the money raised from VED was about to crash from £4.4bn per year to under £3bn by 2020-21. With the UK still borrowing tens of billions each year, Osborne’s reforms were inevitable.

However, the upside is that, by 2020, the money raised from (what can now be properly called) road tax will be ring-fenced for the first time since 1937 and used only to maintain the roads.

Motoring is not cheap, but at least we’re going to get some improvement to the shattered roads for our cash.

NO - Jim Holder

At a stroke, George Osborne has decided that one of the chief motivators for buying a low-emissions car will be swept away. He has done so without consulting a car industry that has invested so heavily in meeting ever more stringent targets, and he has also set a different standard to that in place across the rest of Europe.

Why he has done so is less clear. He could have simply moved the VED CO2 bandings down, continuing to incentivise buyers to look at ever more efficient cars while keeping the government’s coffers topped up. Sure, a true road tax should focus on road use – but an adaption of the old system could have included an emissions benefit too.

What we’re now facing is an inconsistent set of legislation that rewards low emissions sometimes (company car tax, for instance) but not others. All the while, he’s extended punitive VED taxes to cars costing more than £40k – at the same time as de-incentivising makers of these cars from developing the kinds of innovative low-emissions technology that they have traditionally pioneered.

To my mind, the Budget seems to have delivered a set of regulations that are confusing to the motorist and damaging to the industry’s progress with low-emissions technology.

Join the debate

That way no one will understand it and it'll keep thousands of civil servants gainfully employed. Why not just simplify the whole thing by shifting the tax on to increased fuel duty, or applying the tax according to vehicle's homologated weight? Any system based on CO2 is fundamentally flawed because the current test is - and I can't see the new one being introduced within two years (and it will probably be just as flawed anyway).

95% of all of the UK's vehicles paying "around £140"? They're not giving very much to go off, here, but that seems like 'low-emissions' vehicles will basically be the electric ones. And we all know that the government need to do an AWFUL LOT MORE to entice people into those cars, mainly around the infrastructure and cost of these vehicles which still prohibits their use for a lot of people. I know the system has always been flawed but if it's still to be based on emissions, they can't seriously group a car that emits 99 g/km CO2 in the same band as one that emits 180 g/km CO2. Surely? The fact that this is deemed as "helping the motorist" shows how out of touch with motorists they actually are.

What Car's article on this is much clearer. It won't apply to vehicles registered before 1st April 2017. Does this mean we'll see a spike in used car sales, and new car sales beginning to slide again? Given that there are hardly any vehicles that emit 0 g/km of CO2, it seems that *nobody* will benefit from this new system but the government. Even buyers of electric vehicles such as the range-extender version of the i3 will have to pay £140. Is that not just insanity?

....I guess if we are moving back to a real 'Road Tax' then everyone should pay broadly similar fees. An i3 wears out the tarmac just as much as a non hybrid! EV's aren't likely to be driven very far (for obvious reasons!) so I understand their 'free ride'.
All this will encourage premium buyers to buy secondhand (pre reg.), but the current showroom tax was already encouraging this from people who could afford the tax but (quite rightly) didn't see why they should hand over their hard-earned to a bunch of thieving incompetents!

Needless to say that the new system will favour the government. In case anyone is feeling sorry for the government losing revenue on low CO2 cars, please wake up. Road tax is only a fraction of the taxes on the motorists. I'll be happy so long as the government spends a decent part of the money it makes from the motorists on the roads.

Yes! The Ford Mustang V8 with 299g/km CO2 will have to pay £2000 VED in its first year! But then only £140 from year 2??!

All the diesel drivers will have to pay the same as the majority of petrol drivers of £140 from year 2 onwards.

Apart from year 1, its a much better system that scraps pointlessly fine CO2 banding. My god, now even Honda's backwards NA 1.8's with 144g/km CO2 will be competitive. From year 2 it will have no disadvantage over a Vw Golf bluemotion with 85g/km CO2 both will pay £140.

Typical poor Autocar article. The Whatcar version is far more informative.

When this cocaine snorting twat pledges "to improve life for the motorist" you know it's going to end up being more complicated and difficult than any normal sane person can ever imagine. Remember it was this government who pledged to improve the lot of the people of Libya.

I dont know why bands are there at all. It seems fair just to charge the cars CO2 output in Road tax per year. So if your car is electric and has zero tailpipe emissions, you get charged £0. If your car has 95g/km CO2 output then you get charged £95. If your car has 144g/km then £144 and so forth. Stick on a £30 diesel levy for its additional NOx output and bob's ya uncle.

It seems the system will be simpler, which can only be a good thing, and it wont penalise cars with higher emissions in the same way that the current system does, but here are still odd winners and losers....He stated that a system that meant wealthy buyers of new cars paid less than poorer people buying second hand cars was wrong. yet the new system still does exactly that. If you have a pre 2001 car you pay £230. Most cars made from 2001 until late last decade still had CO2 numbers high enough to pay more than £140 too....Really to be fair he needs to drop the tax rate of anything over 5 years of age (the age where new cars could be caught in the 'Premium' band) to £140... Even someone with a late 70's classic will pay more in road tax than the buyer of new car.